Suppose That Canada Decides to Peg Its Dollar ($C, or the Loonie)

Multiple Choice

Suppose that Canada decides to peg its dollar ($C, or the loonie) to the U.S. dollar at an exchange rate of $C1 = $US1. What will happen to Canadian interest rates as a result of the leftward shift of the U.S. IS curve?

A) They will rise.
B) They will fall.
C) They will not change.
D) The IS curve will show an increase.